Fiscal year 2019 audit impacts school system budget request

As the Warren County Board of Education considered the school system’s proposed budget for fiscal year 2020-21 last week, board members and school officials noted that the audit report for fiscal year 2019 had a direct impact on budget preparation.

Board members particularly were concerned that, according to the audit, the school system’s unassigned fund balance, or cash reserves not designated for a specific purpose, stood at just $483,728 on June 30, 2019.

Fund balance was among the data included within the fiscal year 2019 audit report, presented to the board earlier this year by Mike Wike of accounting firm Anderson Smith & Wike PLLC.

Minutes from the meeting indicate that Warren County Schools received an unmodified, or clean, opinion.

According to the audit, the school system’s total primary government revenues for fiscal year 2018-19 were $26.77 million, while expenses were $26.71 million.

As reflected in meeting minutes, Wike reported that state accounting standards require school systems to report their shares of healthcare benefits for retirees as a liability in their financial statements. Warren County Schools’ total for fiscal year 2019 was negative $22.13 million.

The audit report indicates that the school system’s total fund balance, or cash reserves, in the general fund at the beginning of fiscal year 2019 was $1.04 million. However, the total fund balance was $511,746 at the end of the fiscal year, for a decrease of $536,214.

School system records indicate that Warren County Schools has a history of appropriating monies from fund balance in order to balance its budget.

According to those records, the school system appropriated $178,558 from fund balance in fiscal year 2014. Nothing was spent from fund balance in fiscal years 2015-17. However, $337,000 was appropriated from fund balance in 2018. That number spiked in fiscal year 2019, when $790,569 was appropriated to balance the budget.

Wike told the board that decreasing fund balance is not unique to Warren County Schools, and that school systems across North Carolina are facing difficult decisions to make cuts, including personnel positions, to increase their fund balances to the $2-$3 million recommended.

According to the audit, expenses in the general fund were $490,720 over revenues. Wike noted that the overage was caused primarily by unexpected expenses in the exceptional children and transportation departments that were not budgeted and had to be taken from fund balance.

He added that payments to the state retirement system and retirees’ healthcare program also contributed to the reduction in fund balance. Wike said that Warren County Schools is required to pay 19.7 percent per employee into the state retirement system and retirees’ healthcare program. The school system must use local funding to cover these expenses for employees who are paid through county funds, he added. Wike said that Warren County Schools utilized $200,000 in local funds to cover the retirement and retirees’ healthcare program expenses. He added that the school system has worked to address this matter by eliminating retirement healthcare benefits for anyone it hires beginning in the 2020-21 fiscal year.

The audit indicates that Warren County Schools received unqualified, or clean, opinions on compliance related to major federal and state programs, but did make several findings:

• The board of education approved a final budget for the fiscal year that ended in June 2019 in March of that year with a continuation budget in place for the period between the start of the fiscal year in June and time of budget approval. The late approval meant that Warren County Schools operated much of fiscal year 2019 without a budget specific to the year. The accounting firm noted that the delay was caused by uncertainties in funding related to restart schools that caused the budgetary delay.

Warren County Schools implemented the restart model at four of its schools beginning in the 2017-18 school year because they were named low-performing in two out of three years as measured by state test scores. Wike told the board during the audit discussion that the school district’s finances are complicated by the fact that more than half of its schools fall under the restart category.

Minutes from the meeting when the wellness check was presented indicated that Superintendent of Schools Dr. Mary Young said that there has been some discussion about reorganizing restart schools and that she was not sure how long restart schools would retain that designation.

• The Warren County school district had actual expenditures exceeding the budget in the general fund ($490,720), other special revenue fund ($564,275) and federal grants fund ($558,080) due to lack of oversight by management.

The audit report indicates that Warren County Schools developed a corrective action plan to: implement procedures to ensure that the board approves the annual budget in a timely manner including to continue to utilize a consulting firm to assist the finance department until the budget is current; and implement controls and procedures to ensure that there are no expenditures in excess of the budget.